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Executives

Chris Van Ens – Vice President Investor Relations

Thomas W. Toomey – President, Chief Executive Officer & Director

Jerry A. Davis – Senior Vice President Operations

Warren L. Troupe – Senior Executive Vice President

Harry G. Alcock – Senior Vice President – Asset Management

Matthew T. Akin – Senior Vice President – Acquisitions & Dispositions

Analysts

Anthony Pallone – JP Morgan

Eric Wolfe – Citi

[Swaroop Yalla – Morgan Stanley]

Jana Galan – Bank of America Merrill Lynch

Rob Stevenson – Macquarie Capital

Derek Bower – UBS

Karin Ford – KeyBanc Capital Markets

Dave Bragg – Zelman & Associates

Alex Goldfarb – Sandler O’Neill

Stephen C. Swett – Morgan Keegan

Michael Salinsky – RBC Capital Markets

Robert W. Baird – Paula Poskon

[Handal St. Jewws – KBW]

UDR, Inc. (UDR) Q3 2011 Earnings Call October 31, 2011 11:00 AM ET

Operator

Welcome to UDR’s third quarter 2011 conference call. At this time all participants are in a listen only mode. Following the presentation there will be a question and answer session. (Operator Instructions). As a reminder, this call is being recorded today, October 31, 2011. I would now like to turn the call over to Chris Van Ens, Vice President of Investor Relations.

Chris Van Ens

Thank you for joining us for UDR’s third quarter financial results conference call. Our third quarter press release and supplemental disclosure package were distributed earlier today and posted to our website www.UDR.com. In the supplement we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg. G requirements.

I would like to note that statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. The discussion of risks and risk factors are detailed in this morning’s press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

When we get to the question and answer portion we ask that you be respectful of everyone’s time and limit your questions and follow up. Management will be available after the call for your questions that did not get answered on the call. I will now turn the call over to our President and CEO, Tom Toomey.

Thomas W. Toomey

Welcome to UDR’s third quarter conference call. On the call with me today are David Messenger, Chief Financial Officer and Jerry Davis, Senior Vice President of Operations who will discuss our results as well as senior officers Warren Troupe, Harry Alcock, and Matt Akin who will be available to answer questions during the Q&A portion of the call.

My comments will primarily focus on two topics: first, quarterly results and the overall state of UDR’s business now and moving into next year; and second, our expansion efforts over the past year, how our investments have performed, and what is in store moving forward. Following my comments David will discuss our financial results and Jerry will provide commentary on operations.

First, UDR’s business remains strong. The company generated robust same store revenue and net operating income growth of 5% and 7% respectively in the third quarter translating into 14% year-over-year increase in core FFO per share. While we are in a challenging and volatile macro environment, the effects on our business have been mitigated by the combination of declining home ownership rates, a multigenerational low in new supply, low turnover, and solid job growth amongst younger aged cohorts.

Late in the third quarter we saw a typical seasonal slowing in rental rate growth but as of yet have little evidence that this is anything but industry wide seasonality consistent with my many years in the business. We continue to push new leases and renewal rates with little effect on occupancy. The year-to-date rent growth we have realized in 2011 has provided us with initial visibility into revenue growth into early portions of 2012. Jerry will provide an overview of how our core markets are performing in his prepared remarks.

Second, we have grown and improved our overall portfolio within the last 12 months through a combination of acquisitions, developments, redevelopment and dispositions totaling a net investment of $2.7 billion. These strategic actions have resulted in our average portfolio rent for our wholly owned community increasing to $1,320 per home at the end of the third quarter. This is up from $1,150 per home in the second quarter 2010, or a 15% growth. And, the corridor between Boston and Washington DC, now comprises 36% of our net operating income while the west coast comprises 38% of our NOI.

First let’s discuss and focus and focus on the acquisitions. Our 2010 and 2011 acquisitions have targeted urban markets with favorable job formation in the renter cohort, low single home affordability and advantage multifamily supply and demand dynamics such as Manhattan, Boston, Washington DC, San Francisco, and southern California. Integrating these high quality assets into our portfolio has been a top priority. I am pleased to report that Jerry and his team have made great progress driving operating efficiencies at these assets and thereby creating significant value.

Before moving on to development and redevelopment, I’d like to say a couple of words on $1.2 billion of acquisitions we’ve completed in Manhattan during 2011. We are very encouraged by the improvement in operations and the rent increases we have achieved thus far in Manhattan. While we are just beginning our redevelopment efforts, I’m excited about the initial outperformance versus our pro forma expectations for the project and our entire portfolio there. Jerry will speak in more detail on the success we are achieving during his prepared remarks.

Next, our development and redevelopment pipeline continue to grow totaling nearly $1.1 billion or 12% of the enterprise value at the end of the third quarter. This is consistent with our coverage level of 10% to 15% of enterprise value. Important, many of our projects are in unique [gym] locations in high barrier entry markets where we are better insulated from future upticks in new multifamily supply. Our redevelopment pipeline continues to provide opportunity to improve the portfolio at a good risk adjusted return and can be right sized quickly to changing market dynamics.

Non-core asset disposition will be our preferred tool for funding our development and redevelopment activity. To date we have sold $440 million of property in such markets as Dallas, San Francisco East Bay, as well as non-core communities in Southern California and Raleigh. Currently we have approximately $50 million of assets under contract and are marketing over $200 million more. We believe that there’s a strong market for asset sales are potential buyers are hungry for yield right now. NOIs are benefitting from solid fundamentals and the lending environment for multifamily remains very supporting and accommodating. David will provide more information in his prepared remarks on our dispositions.

In conclusion, market fundamentals remain strong. Our asset integration efforts are beginning to yield results at our acquired properties and our operating platform is running on all cylinders. We look forward to our continued success. With that, I’ll pass the call over to David.

DD

Earlier this morning, we reported a year-over-year 14% increase in our core FFO to $0.32. Our results are consistent with our guidance announced in July. Further details are included in our press release and supplements. During the quarter we had two primary non-recurring transactions. First, we recorded $2 million in costs in connection with our acquisitions and second, we completed the sale of a technology investment realizing a gain of $2.6 million.

Turning to our balance sheet, during the quarter we raised $584 million through a combination of our ATM program, secondary offering and operating partnership units. This equates to 24.2 million shares in operating partnership units at a weighted average price of $24.12. For the year, we have raised $974 million of equity at a weighted average price of $24.19. This is consistent with the amounts disclosed during our second quarter call and no additional shares have been sold under the ATM since.

In September we acquired 95 Wall and issued $1.8 million operating partnership units for $45.1 million at a price of $25 per unit. At September 30 there were 232.2 million common share equivalent outstanding and for your models, if you assume no further equity issuances for the remainder of the year, the fourth quarter weighted average share count would be 232.2 million and the year-to-date average would be 214 million.

As of September 30th we had $506 million of cash and credit capacity. Last Tuesday we announced the closing of our new $900 million revolving line of credit which has an interest rate of LIBOR plus 122.5 basis points, a facility fee of 22.5 basis points, matures in four years with a one year extension option and included an accordion up to $1.35 billion. At the same time we announced a repricing of our $250 million unsecured term loan due in January 2016. The pricing was improved to LIBOR plus 142.5 bips from LIBOR plus 200. The balance of the year has no debt maturing that does not have an extension option.

During the quarter we repaid $97 million of our 3 5/8th percent convertible notes and two secured mortgages for $15 million. Combined, the debt had a weighted average interest rate of 3.9% and a GAAP accounting rate of 5.6%. The retirement of these [bonds] eliminates the convertible debt amortization of $359,000 per quarter. In the fourth quarter we had the opportunity to prepay at PAR $100 million of a secured credit facility that carries a 6.78% interest rate. We are currently planning to repay this facility with sales proceeds.

To recap our balance sheet metric, since 2009 we have discussed how we would delever through acquisitions and how it would be funded with a larger percentage of equities and debt. Accordingly, our debt to EBITDA has moved from greater than 10 times to an annualized 8.5 times today. Our debt plus preferred stock to gross assets value ratio has decreased by more than 500 basis points to approximately 48%. Our secured debt to asset ratio improved 900 basis points to 23%. Our fixed charge ratio has improved to 2.5 times and our unencumbered asset pool has grown by more than 25% to more than $5 billion on a historical cost basis. We anticipated these metrics will continue to improve as we execute our strategy.

During our second quarter call we provided asset disposition guidance of $500 to $600 million. To date we have closed on asset swaps for $237 million and sold three types of assets for $81.5 million. Subsequent to September 30 we closed on the sale of The Tribute in Raleigh North Carolina for $56 million and two communities in non-core markets in California for $69 million. We have two additional units in non-core markets under contract for $53 million expected to close in the fourth quarter which will bring the year-to-date total to $496 million. In addition to these transactions, we have several other non-core communities listed for sale. The proceeds from these sales will be used to fund debt repayment and our redevelopment pipeline.

Turning to guidance for the balance of 2011. Our year-to-date and third quarter results are in line with our expectations for the full year. Accordingly, we will maintain our practice to update guidance through the year or when a material event has occurred. Now, I’ll turn the call over to Jerry.

Jerry A. Davis

We’re happy to report same store NOI was up 7% which results in revenue growth of 5%, expense growth of 1.1%. Total same store income for occupied homes increased 4.9% to $1201 and occupancy increased 10 basis points to 95.6%. Our loss to lease at the end of September, 2011 was 5% or $58 per home and market rents that increased 6.6% since last September. On a sequential basis revenue increased 2%, [inaudible] were up 2.5% and NOI increased 1.8%.

In our same store portfolio effective rental rates on new leases entered into during the quarter were on average 4.7% higher than what the prior resident was paying. Renewing residents on average paid 6.4% higher on an effective basis. Tom mentioned the seasonality of our business and I’d like to expand on his comments. We manage our lease expirations to have more leases ending during the second and third quarter when traffic is heavier. Accordingly, during the fourth quarter when we have a natural deceleration of traffic we have fewer leases expiring. Our pricing engines are more aggressive when demand is high in the second and third quarter.

In addition, since we have fewer leases turning over in this fourth quarter time period, we have fewer opportunities to increase rent. What we are seeing this year is no different than what we’ve seen historically. Going back to 2005, our sequential revenue growth in the fourth quarter averaged flat to nearly flat. We would expect fourth quarter of this year to be consistent with the past. What is more important than looking at the next three months is looking out beyond that. In that same time frame since 2005, our first quarter sequential growth has averaged .7% and in each year was higher than the preceding fourth quarter’s sequential revenue growth.

I would remind you that our loss to lease at the end of September was 5%. Assuming market rents don’t fall over the next year, we should capture most of this in the rent growth. As we entered the fourth quarter we began to experience the typical seasonal slowing as just discussed that has resulted in slightly lower increases on both new leases and renewal leases. That said, we saw our same store new lease rate increased 3.2% in October led by San Francisco with average increases of more than 12% and Austin and Dallas with over 7%.

Renewals in October remained strong up 6% led by San Francisco at 9% and Phoenix and Seattle over 7%. Renewal increases sent out for the remainder of the fourth quarter averaged 6%. We’ve also noticed that we have better pricing power at our A communities than our B communities within a given market. Over the past three months new lease rates in our A communities were up 5.5% versus 3.8% for the B communities. We believe this is the result of higher rent residents being more concerned with location, amenities, interior finishes while lower rent residents are looking for the best deal. Our higher rent properties tend to be more urban and our lower rent communities are more suburban.

Resident turnover was up slightly in the quarter to an annualized rate of 66% compared to 65% in the third quarter of 2010. Year-to-date our annualized turnover rate decreased by 100 basis points to 55%. Move out for home purchase remain well below historical average at 12% while move outs due to rent increases are rising slightly, they still represent only 7% of move outs.

Expense growth of 1.1% was the result of higher real estate taxes, utilities, and insurance costs which were offset by lower repairs and maintenance, personnel costs, administrative and marketing costs. Given the acquisition redevelopment and disposition activity over the past 12 months, our non-same store portfolio has grown to 10,107 homes and now represents 28% of our total quarterly NOI including over 3,200 acquired homes located in markets such as Boston, Manhattan, San Francisco, Washington DC, Los Angeles, and Orange County. These properties are performing as expected and are generating better growth in our same store portfolio.

In fact, on a sequential basis, our 2010 acquisitions had revenue growth of 2.8% compared to 2% for our same store portfolio. Our 2011 acquisitions produced revenue that was almost 2% over pro forma in the third quarter. Our recent New York acquisitions are giving rent increases in the 11% to 14% range and have occupancies averaging 98%. In addition, since acquiring these properties we’ve been able to eliminate broker commissions and reduce maintenance costs.

Average occupancy for all properties acquired in both 2010 and 2011 was just under 97%. If you refer to attachment nine in our earnings supplement, you will see that we have completed the development of over 2,200 homes in six communities at a total cost of $437 million or $186,000 per home. All of the homes go into our same store pool within the next year except The Tribute which was sold last week. These properties had sequential revenue growth of 2.4% in the third quarter.

In addition, on attachment 10 and 11 you’ll see that we have 2,573 homes being developed at a total estimated cost of $751 million or $292,000 per home. On attachment 10 you will see we have close to 3,000 homes in redevelopment. The pipeline consists of seven communities at a total investment of $337 million. Barton Creek Landing in Austin Texas is scheduled to be completed by the end of the year. CitySouth in San Mateo California will be completed by mid year 2012. Leasing velocity and pricing continues to be very strong at both CitySouth and Barton Creek Landing and both properties are operating ahead of plan.

We have five additional properties in Southern California, Metro DC, and Manhattan that are just now beginning the redevelopment process with estimated completions ranging from the second quarter 2013 to the second quarter 2014. Our joint venture with MetLife which includes 26 properties containing 5,748 homes continues to perform well. During the third quarter we reached 95% visible occupancy for the portfolio. The 23 communities that had stabilized occupancies in both second and third quarters achieved sequential revenue growth of 3%.

With that, I’d like to give my thanks to all our dedicated associates in the field and in our corporate and regional offices for a strong quarter. Now, I’ll turn the call back over to you Tom.

Thomas W. Toomey

Operator, we’re now ready for the Q&A portion of the call.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from Anthony Pallone – JP Morgan.

Anthony Pallone – JP Morgan

My first question is Tom you mentioned the environment for selling assets and just transactions in general just pretty strong. I was wondering if you could comment on how participants are underwriting NOI growth over the next few years versus say how underwriting saved up a few months back.

Thomas W. Toomey

With respect to the environment I’ll let Harry and Matt speak about the bidding and what people are underwriting. But on the environment topic I think one thing that is telling about that is that as we’ve talked to a number of lending institutions about their plans for ’12 we have found every platform is going to increase its lending to the multifamily space over ’12 and believe that will be a great environment conducive to getting our sales done both those that are in the pipeline and those that we’re going to undertake in ’12. With respect to the underwriting, what people are underwriting, do you guys have an idea?

Matthew T. Akin

I think buyers are still underwriting strong revenue and NOI growth. There hasn’t been any substantive change over the past several months. It’s still a good fundamental operating environment.

Harry G. Alcock

I’d just add that I think the value add buyers are coming back more and more so we’re seeing a little more emphasis on value add opportunities.

Anthony Pallone – JP Morgan

For your New York City assets, I guess with concerns over financial services potentially pulling back and what the implications may be for Manhattan, I’m wondering how those assets that you bought that were up and running from 2007 to 2010 performed?

DD

Well, the assets they experienced a dip in revenue and now they’re at or above their peak revenue levels.

Thomas W. Toomey

Tony, to be clear we didn’t buy anything until April of this year and so in underwriting historical numbers we didn’t really go back all the way through the last 10 to 15 years to see where the troughs were and the impact. But it’s clear from our value add that we’re getting in rent increases better than 12% and in some cases up to 15% and that’s primarily what we identified in the underwriting and so we’re exceeding our pro forms on those.

Operator

Your next question comes from Eric Wolfe – Citi.

Eric Wolfe – Citi

Could you just talk about the level of traffic that you saw in October relative to the same time last year and how that trending through the third quarter? I’m basically just wondering whether you’re seeing the same pause in demand that one of your peers mentioned.

Jerry A. Davis

We’ve been hearing a lot about traffic over the last week or so and I’d like to tell you that our traffic and rents in the fourth quarter are in line with our expectations. If I were in home building or retail I’d focus a lot more on traffic but we tend to look more at leasing activity and putting money in the bank. I think the key points to focus on in our business really are what’s sequential revenue growth going to be in 3Q and 4Q.

We look back over the last five to 10 years, typical growth from 3Q to 4Q is flat on a good year, down in most years. This year it’s looking like it’s going to be flat to slightly up. Let me repeat that, we think it’s a good quarter and we think sequential growth from 3Q to 4Q is going to be slightly up. The other thing we focused a little bit more on is what is 4Q versus last year’s revenue growth look like and right now it’s looking like it’s probably going to be 5% to 5.5% up.

Lastly, we look at the strength of our ability to renew and I think I said in my prepared remarks that through the fourth quarter we’re sending out 6% on average and we think in January, so as we turn into 2012 at the beginning of the year we’re going to see rent increases going out to existing residents of 5.5% to 6.5%. I’d remind you that this is from our same store portfolio. In our non-same stores which represent over 25% of the company, we’re expecting to do even better than that. Outside of New York will be slightly better than the 5.5% to 6.5% and in New York it looks like it is probably more 8% to 10% range. So again, traffic is where we expect it. There are no surprises on traffic and pricing. The fourth quarter is playing out how we thought.

Eric Wolfe – Citi

That sort of leads into my next question because Tom, you mentioned that the leases you’re signing now give you a pretty good look into the early part of 2012. So just based on those leases would you expect growth to accelerate in the early part of the year or is it going to stay flattish? What do you think that sort of revenue growth might look like without of course providing guidance.

Jerry A. Davis

I would tell you in the fourth quarter again, you typically have a drop down in your ability to increase rents just because there’s reduced traffic. As you enter the first quarter you typically pick up some momentum, traffic comes back usually about mid January and accelerates throughout the spring and really accelerates in the summer. So without giving guidance, we would things would pickup in the first quarter.

Thomas W. Toomey

One thing I’d add is I think in my prepared remarks if Jerry were not to increase rent anymore than he already has in terms of market and if occupancies were to stay flat, you’d be embedded somewhere around 4.5% revenue growth next year. Obviously, we’re not standing still and obviously we think fundamentals are strong and we like to be able to beat that number. It’s just saying as a floor, if you would, under that premise next year and that it’s only to the upside is where we’re looking.

Operator

Your next question comes from [Swaroop Yalla – Morgan Stanley].

[Swaroop Yalla – Morgan Stanley]

Jerry, you mentioned in your comments that there seems to be a bifurcation in As versus Bs in your ability to improve rents. I was just wondering, does that hold true also for your markets which are at the top end of the rent growth like San Francisco and Austin?

Jerry A. Davis

I think it holds true throughout the entire portfolio, the disparity between As and Bs in the markets we operate in. There’s definitely the disparity I talked about as far as the ability to push new rent. The other thing is occupancy levels on our A properties are about 95.9% in the third quarter and Bs were about 95.4%. Well, you tend to see it, more of our portfolio on the market basis – more of our portfolio in San Francisco tends to be in the A range and we’re getting much better performance there.

[Swaroop Yalla – Morgan Stanley]

Just turning to redevelopment, what are the yields you’re looking at on the new redevelopment projects you’re starting? And also, what was the difference in what you realized at CitySouth and some of the others ones that you completed versus pro forma?

Thomas W. Toomey

Our underwriting, which we’ve discussed in prior years is first you have to undertake the effort to bring the asset to market. So if we think the asset is on our books at $10 million but truly we can sell it at $20, we calculate our return assuming the $20 and our return expectations for the redevelopment pipeline are generally probably going to be 7.5 if you take out that step of the market value, you’re probably more in the nine range.

[Swaroop Yalla – Morgan Stanley]

Did that hold true for CitySouth and the way the rents are looking right now?

Jerry A. Davis

I think both CitySouth and Barton Creek are up in that range. You know, we’ve increased rent at Barton Creek over $500 from pre rehab to post rehab and at CitySouth they’re up well over $700.

Operator

Your next question comes from Jana Galan – Bank of America Merrill Lynch.

Jana Galan – Bank of America Merrill Lynch

Following up the comments you made on the disposition environment, I was wondering if you could comment on how you’re thinking about acquisitions now and do you see better opportunities in redevelopment, development, or maybe land purchases?

Jerry A. Davis

With respect to the best opportunities, I think the best opportunity for capital would probably be the redevelopment effort in our mind. Why? Because, you have an embedded cash flow, you take a part of it offline but the efforts that we’re undertaking mostly in California right now, many of the residents frankly do not move while we’re conducting the redevelopment so very little dilution out of that effort. Next up to that would probably be the acquisition front, but that’s hard to project. We’re certainly looking at a number of opportunities. We’re never certain about which one will get across the go line but there’s plenty in that front. On the development front, where we can’t buy, or we don’t have existing assets then we’ll undertake development.

On the land pricing, we think land really did not take a hit in the downturn is right back to the 2007 pricing levels and so we’re looking for development sites. We’ve got a lot in front of us, we’ll just have to pick through the opportunities and see what really fits us and our return expectations. So there’s plenty of opportunities for us to put capital to work, we’re just going to be very selective and thoughtful about that process.

Operator

Your next question comes from Rob Stevenson – Macquarie Capital.

Rob Stevenson – Macquarie Capital

Tom, just a follow up on that last question, in the release you guys talked about the Beach Walk JV potentially starting in the next year and I think you’ve got some more Vitruvian land and a Wilshire Los Angeles site, am I correct in that’s basically right now what’s on the books as the extent of your development capabilities for future starts?

Thomas W. Toomey

That’s correct as well as I would add the Met joint venture which has 10 sites remaining and we’re out examining those right as we speak and I would suspect over the next year that some of those will be undertaken.

Rob Stevenson – Macquarie Capital

Jerry, can you give us the monthly breakdown during the third quarter of the rental rate growth increases for both new leases as well as renewals?

Jerry A. Davis

For renewals in July it was 6.2%, August was 6.6%, September was 6.4% and for new leases July was 4.7%, August was 4.5% and September was 5.2%.

Rob Stevenson – Macquarie Capital

Then one last question on expenses, do you guys talk about whether or not you’re seeing any significant upward pressure on expenses that you had through the back half of this year relative to expectations?

Jerry A. Davis

Really, the only real category of expenses that we expect to see some pressure compared to last year is real estate taxes. They should be even with what they’ve been throughout the last quarter or two but last year in the fourth quarter we had some revaluations that came through to us and gave us some savings in the fourth quarter of last year. So year-over-year growth in 4Q will predominately come from real estate taxes.

Thomas W. Toomey

One thing that [came] to me to add to the expense front here and I’m going to take a little bit and pat Jerry on the back and his team. We look at the long term trend of expenses, and you can have short swings but the truth is over the last five years he’s grown expenses on average under 1% in each of the last five years. And certainly I think a lot of that is people, a lot of it is technology and just better but the end is what it does is lead us to a better margin and we’ve crossed back over 66 and if you add in the non-matures I think the margin gets to 68%. People lose sight of, sometimes that in the real estate field, it’s a big metric to us especially when we go and look at acquisitions and if we say we’re running down the street at 68% or 69% margin and the existing operator is running at 62% we know we can get that margin over time. So it’s an important metric to start thinking about.

Rob Stevenson – Macquarie Capital

Is there anything big left on the horizon to improve that any further?

Thomas W. Toomey

Well, I think one of the biggest fronts here is our open and you’re going to see as we probably move through this slide in home ownership is retention. If we can figure out how to unlock more and more of this turnover and bring it down with an average turn cost of $2,000 we could potentially cap for a great deal of upside in that area. On the new technology front, how you procure a customer, we’ve all made the first frontier which is to get into pricing technology.

The question now is how to identify to spend the right marketing dollars on the right customer, so to work backwards on your channeling of marketing dollars to get the high probability tenants who is going to stay there for long periods of time. I think you’re going to see more and more of that predictive model about how to score your customer, how to attract your customer, and then how to keep them. I think there’s a lot to gain in this area and certainly that’s where our focus is and our technology and people efforts.

Operator

Your next question comes from Derek Bower – UBS.

Derek Bower – UBS

I just wanted to follow up on an earlier question, I understand that traffic is in line with your expectations but can you help us quantify what that means in terms of actual year-over-year increase or decrease?

Jerry A. Davis

I would tell you our third quarter unique visitor traffic at www.UDR.com is up 30% year-over-year and in October it was up 35% to 245,000 hits. In addition to [inaudible] our mobile traffic which represents about 14% of our unique traffic at www.UDR.com is up about 132%.

Derek Bower – UBS

And what about the actual asset level, people walking in the door?

Jerry A. Davis

It’s about what we expected. It’s down probably 15%. That’s what we projected it would be. You know, what you had happen last year and the year before is people were aware that there was a large drop from peak to trough and they went out and looked and in 2009 they were able to find a great deal so traffic was up. So instead of looking at three competitive properties they may have gone to 10. Last year they went again and thought they could play the same game and get a substantial increase and I think what they found was price was roughly the same as they were paying at a comparable property. This year, I think people look online more than they did two years ago. They do all of their price shopping through places like www.UDR.com to help narrow down their selection.

Derek Bower – UBS

On markets specifically, can you talk about trends in Norfolk Virginia and I guess comment on the [Norfolk] overall? It looks like your rent per occupied home actual slipped sequentially so any additional color there would be helpful?

Jerry A. Davis

Norfolk is predominately a military town, sort of Navel basis. Norfolk has been hurt more than most our other properties, all of their decline recently is not seasonality. It can really relate to ships going out versus ships going in so you have some unique phenomena that occurs there as well as in our San Diego and the Jacksonville market. That’s the primary thing that happened in Norfolk, the military rotations.

Thomas W. Toomey

I’d add that with the recent administration’s announcements that they’re going to pull back some of the people from the Middle East it will be interesting to see which markets and what divisions get pulled back and what the timing of that is. But I think the long term aspect of Norfolk is it will recover just on the indication that we’re going to draw down our troops.

Operator

Your next question comes from Karin Ford – KeyBanc Capital Markets.

Karin Ford – KeyBanc Capital Markets

I wanted to follow up on your answer to Tony’s question, you said that all the lenders you spoke to are looking to increase their lending activity in multifamily. Are you finding that is true for construction lending as well? And is it just for the multifamily REITs or are they looking to expand their activity to both public and private borrowers?

Warren L. Troupe

I’ll tell you that with respect to we’re out in the market in construction loans and it’s a very competitive pricing and there’s a lot of buy in for construction loans. I think that’s true with respect to public REITs. We have heard anecdotally that construction lending is still difficult for the private.

Karin Ford – KeyBanc Capital Markets

My second question is just a clarification from Jerry, did you say that you thought sequential growth from 4Q to 1Q on the revenue side would be 0.7%?

Jerry A. Davis

I did. Well, I didn’t say that’s what I thought it would be this year, I said that as we look back over the last six or seven years that’s what it’s averaging.

Karin Ford – KeyBanc Capital Markets

If 4Q ends up flat to slightly up sequentially and then 4Q to 1Q ends up at that average of 70 basis points what do you think the year-over-year revenue growth would be in 1Q12?

Jerry A. Davis

I don’t think we want to give any guidance right now.

Thomas W. Toomey

It will be positive Karin.

Operator

Your next question comes from Dave Bragg – Zelman & Associates.

Dave Bragg – Zelman & Associates

Just back to this traffic topic, I don’t mean to dwell on it but I just think it has this figure that you put out and also another peer put out in terms of the year-over-year decline has caught some people’s attention. And I know it’s not your preferred metric in terms of visits to the communities but can you just put this into historical perspective for us? On a year-over-year basis have you seen other periods where you’ve seen a decline like that?

Jerry A. Davis

I have. Traffic will fluctuate at any given time. I can tell you for the full year our traffic is probably down a little over 10%. So what’s happening right now is a little more pronounced but again I think what happened last year and the year before is people were out looking for a deal they were able to get in 2009 they discovered in 2010 they couldn’t find it and this year they’re just looking on the internet while they’re price shopping.

Thomas W. Toomey

I do believe that there’s a little bit too much emphasis on the early part of the reporting season on this traffic patter when in fact, what really matters is what cash we’re putting in the bank, what our occupancies are, what we’re sending out for renewal notices, what those renewal notices are going to be the take rate. And in our business we’re telling you we see continued revenue growth, that we’re not at all surprised at the seasonal pattern and frankly it makes a lot of sense to us in light of both holidays, heat wave, all those traffic elements that influence it. But the truth is we’re pushing rent, we’re not getting a push back on it and that’s where we think the business is headed and headed for a long period of time.

Dave Bragg – Zelman & Associates

Jerry you had an interesting comment on As versus Bs, you mentioned the spread in terms of pricing during the third quarter. Is this a widening spread or is that spread consistent with what you saw in the first half of the year?

Jerry A. Davis

I’ll be honest with you Dave, we weren’t really tracking it in depth earlier this year so I don’t have that number handy. I may be able to go dig that back up.

Dave Bragg – Zelman & Associates

Last question, Tom, just given your preference for redevelopment today can you talk about that pipeline and maybe put it into perspective for us in terms of how large of an opportunity that is in your core markets, what’s the potential annual spend there?

Thomas W. Toomey

Well, David it’s hard to forecast exactly how much of the pipeline will pencil out but moving it out by $300 million as we’ve done, I would like to continue the increase to have about $300 million underway each year. The source of that, we think a lot of it is going to be frankly in the California corridors where it’s so difficult to really develop from the ground up there with sometimes three, four years of lead time to look at something and scrape it. A lot of our portfolio in those markets frankly are up against the west side of the 405 and we think that’s a great place with a high propensity to rent where an improved product has a wide pool of renters available to it.

So we’re focused on that which happens to be our largest market at present. Then followed by that we’ll probably be looking at the DC corridor and the inner loop there where we think we have a handful of opportunities. But the redevelopment is, as you can visit in many of our assets, for us it is not a $10,000 a door effort. We are actually taking the community apart, you’re really attempting to retenant it completely not just on a cash-on-cash returns analysis but also on a cap rate compression.

For many of you that have seen CitySouth, if we had sold that in the open market it probably would have been a 6.25 cap and post redevelopment it’s probably a 5.25 cap and with a $700 a month rent increase you can kind of pencil in the kind of great return and it’s a great location. So that’s why we really gravitate to the redevelopment efforts and believe on a risk adjusted basis why it scores the best on returns.

Dave Bragg – Zelman & Associates

Tom, one last question on that, in terms of your underwriting on the new redevelopment starts, is that 100 basis points of compression a pretty good rule of thumb for us to think about?

Thomas W. Toomey

I would do that, yes.

Operator

Your next question comes from Alex Goldfarb – Sandler O’Neill.

Alex Goldfarb – Sandler O’Neill

Just going back to Tom, on the redevelopment front, if you could just give us some examples on Marina Pointe and the two Costa Mesa deals what your team is expecting from the revenue for the rental pop for those redevelopments?

Thomas W. Toomey

We expect somewhere in the neighborhood of $600 to $700 per month in incremental revenue on those. Marina Pointe is about $1,500 it’s going to $2,100 to $2,200 [inaudible] in each of the Pine Brook assets which are next door to one another are going to be very similar going from that $1,500 to $1,600 up above $2,000 per month.

Alex Goldfarb – Sandler O’Neill

Then those assumptions are based on current rents today, right? It’s not like you’re trending it forward?

Thomas W. Toomey

Those are based on current rents today, yes.

Thomas W. Toomey

Alex, once you’ve visited enough of these you realize that the vast majority of the people are not going to move while they’re being rehabbed. That our team has been very good at deciphering how to properly do the rehab and sequence it so we really don’t take much of a hit in the cash flow.

Alex Goldfarb – Sandler O’Neill

The second question is as you talk about your dispositions and recycling capital, I’m sort of curious, the Fannie JV, I’m sure they wouldn’t mind raising a few extra dollars although I don’t want to speak to them, but given that JV is there any chance that maybe that’s a harvest opportunity for you?

Thomas W. Toomey

We’re always talking to Fannie both in terms of the joint venture and lending, and the market. And if the opportunity avails itself for those assets to either be sold, or split, the [babies] so to speak, but I’m sure when the time is appropriate there will be a dissolution of that.

Alex Goldfarb – Sandler O’Neill

But there’s nothing actively being discussed in the near term.

Thomas W. Toomey

I’d just say we’re always in conversation with them.

Alex Goldfarb – Sandler O’Neill

The last question is probably for Warren, you guys are the latest to do the line of credit and the term loan financing. I’m just sort of curious where you started conversations to where you closed, how much of an improvement in rate do you think you got from banks being more competitive versus simply the market coming in?

Warren L. Troupe

Obviously, we’ve looked at this, done the analyst on this and [ETR] has been out in the market and a couple of our other peers so pricing really is kind of set what you’re peers are priced at. I will tell you that it is a very competitive market and it [inaudible] very heavily to be in the line. I think the combination of how we got pretty good pricing on it.

Alex Goldfarb – Sandler O’Neill

But you can’t give us some perspective as far as that competitiveness helped pricing versus just general market trends?

Warren L. Troupe

No, not really.

Operator

Your next question comes from Stephen C. Swett – Morgan Keegan.

Stephen C. Swett – Morgan Keegan

Tom, you’ve got another $250 million under contract and being marketed. When those sales are completed where does that put you in terms of your long term portfolio transition goals? Are you going to kind of be where you want to be or is there still more selling either by market or submarket that you’ve got planned?

Thomas W. Toomey

I think this management groups sees it as a continual effort to always improve the quality of the portfolio and so there’s always going to be an evaluation of every asset in terms of where it stands, what do we think is left in the upside of it, what does the cap ex need and a decision made about the long term right use of capital. At present what we’re targeting is to get into a program of $400 to $500 million annually in sales to offset what is coming online in new development. And we think that nice match, if you will, we think developments are getting 6 to 6.5 and we can go to the market and be selling Norfolk, Virginia, Tennessee, those markets at 6 to 6.5 that it’s a great redeployment of capital, it won’t be dilutive.

So I think we’ll continue to do that and we think that environment will sustain itself for a while primarily because of the low interest rate environment that looks like it’s going to persist for some period of time. And most of those buyers of that caliber of asset are very leverage sensitive and they’re going to be there in depth. So I think it’s a long term program for us.

Stephen C. Swett – Morgan Keegan

Second question either for David or Warren, as you look into 2012 the debt maturities, any initial thoughts in terms of refinancing either with some incremental equity or your sense on what kind of terms you would use.

DD

I think we’ll always look at all the different alternatives and possibilities that we have when that time presents itself. We’re always trying to keep our finger on capital markets to where debt pricing is and equity pricing and if an opportunity presents itself one way or the other we would utilize it. But as of today we wouldn’t pin ourselves down to one mode or another.

Operator

Your next question comes from Michael Salinsky – RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Just to go back to the rental traffic, can you talk about qualified applications? I know people coming into the property but many people that are actually looking to lease the property as well, maybe that’s a better way to look at it?

Jerry A. Davis

I will tell you the rent scores are comparable to what they have been. We really haven’t seen a change in that.

Michael Salinsky – RBC Capital Markets

Has there been a change in the number of applications? I mean, a person walking in who is shopping the property versus a person actually putting in a rental application I think are two different things?

Jerry A. Davis

I’m sorry I didn’t follow your question. No, you’re right applications have really stayed fairly constant with where they were last year. Today our occupancy is 95.3% so a little bit lower than what we had last year but what we’re really trying to do this year is maintain some of the rate not cut price too much to load up on the occupancy right now so that will push it up in 2012.

Michael Salinsky – RBC Capital Markets

Second of all you talked about a 5% loss to lease, can you break that out maybe by region or market a bit more so we can see how pricing trends are going?

Jerry A. Davis

As of September – our largest loss to lease at September was in Austin at about 12.5%. That was followed by San Francisco at about 10%, Dallas was around 8%, the bulk of the rest were near the middle. The lower loss to leases are currently in some of our outlaying tertiary areas like Sacramental, other Mid-Atlantic, Portland and Monterrey at 1% to 1.5% and actually Washington DC is down around that 1% level too.

Michael Salinsky – RBC Capital Markets

Finally, just in terms of non-core assets as we start thinking about you mentioned for next year recycling assets to refund development, are we to assume then that acquisitions will be more equity funded as with this year or is that going to be also funded with recycling proceeds?

Thomas W. Toomey

I think that is our preferred path with equity and we think it’s a great partnership with our shareholders. They can look at individual acquisition opportunities and determine if we’re heading in the right direction and they get to vote with whether they’re going to buy in or not so we think it’s the right path.

Operator

Your next question comes from Robert W. Baird – Paula Poskon.

Robert W. Baird – Paula Poskon

Just a follow up on Karin’s question around the environment for construction financing, are you more or less concerned about new supply across your markets than you may have been maybe six months ago?

Thomas W. Toomey

As I’ve just recently come back from [inaudible] and a number of conferences, it’s very clear to me that the merchant building model is out there seeking capital but the capital is picking through deals. And so there are now, I think in the Mill Wood guys for example are going to say they started out in 2012 thinking they were going to do 2,000 doors and they’re not really upping their increase because capital is being very selective. So I think the merchant builders are hanging around the hoop if you will. There’s not a lot of equity or they don’t have the financial guaranteed entities to get the deals done right now.

Markets that they’re looking for and building in, no surprises there, it’s the suburban DC, it’s the Texas market and we’re starting to see them spring up a little bit in Florida. So mostly suburban oriented product, but again, recognize we’re at record low, generational low, supply numbers and they could go up from here and still not represent a threat to our revenue outlook.

Operator

Your next question comes from [Handal St. Jewws – KBW].

[Handal St. Jewws – KBW]

Jerry, I guess this one is for you, can you expand a bit on your southern California experience during 3Q, particularly LA? Recent third-party data indicated LA strengthened materially during 3Q yet your numbers don’t seem to reflect that?

Jerry A. Davis

LA stayed stable. I think the Marina area during the summer saw a month or two of weakness and since stabilized with our occupancies there being up in the 95% to 96% range. But early in the summer June, July, maybe the first part of August the Marina area was a little soft but it strengthened and probably half of our LA portfolio was up in that market.

[Handal St. Jewws – KBW]

And your thoughts on the other pieces of the LA market, maybe downtown or some of the other areas you’re exposed to?

Jerry A. Davis

Downtown has been performing strong for us. Our MetLife deal, 717 Olympic has been able to push rents and have a good strong occupancy. We sent out pretty good rent increases in the 5% to 7% range.

[Handal St. Jewws – KBW]

Tom, for you I guess more broadly your thoughts on potential acquisition activity today, what are the minimum thresholds ROI today? How has that changed in the past few months and is it better to assume that despite your preponderance of investment opportunity the last year on the east coast that the west coast is probably where you’ll be focusing your attention a bit more going forward?

Thomas W. Toomey

I think it’s clear from where our platform is headed that we’re going to continue to focus from the DC to Boston corridor and focus on the west coast as well. With respect to higher ROIs I think it’s one metric. We use a number of them, one is just replacement cost and we still believe we’re buying assets well below the replacement cost in some of these urban corridors and so I think that’s going to be a metric we’re focused mostly on as well as the growth prospects in terms of what Jerry and his team can do to bring NOIs up to market or exceed market. The ROI’s to answer directly, I guess we kind of look at an eight on an unlevered basis and believe that that’s kind of a minimal threshold. Sometimes we’ll dip below that and take a little bit more risk in terms of the prospects for the future of the enterprise but that’s kind of a number we think about.

[Handal St. Jewws – KBW]

Just one modeling question, can you guys talk about the cap rate achieved on the assets sold during 3Q and also on the assets that are currently under contract today?

Matthew T. Akin

I think overall we’re looking at a blended six cap rate on the dispositions. That would probably be equivalent to what we have under contract as well. So it’s really a forward ’12 look after cap ex and management fees.

Operator

At this time there are no further questions in the queue. I’d like to turn the call back over to Tom Toomey for any closing comments.

Thomas W. Toomey

Thank you all of you and I hope that the snow has not inconvenienced you a great deal in the Northeast and we will see many of you a NAREIT and certainly hope that you’ll sign up for our tour of Vitruvian Park. With that, thank you again.

Operator

Ladies and gentlemen this does conclude the conference for today. If you would like to listen to a replay of this conference you may do so by dialing either 303-590-3030 or 1-800-406-7325. You will need to enter the access code of 4472872. Those replay numbers once again are 303-590-3030 or 1-800-406-7325 with the access code of 4472872. Again, we do thank you for your participation. You may down disconnect your lines at this time.

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